ECB President Mario Draghi spoke today at the ECB’s Watchers Conference, hosted in Frankfurt with investors around the world looking for clues as to the ending of the ECB’s massive bond-buying scheme.
Last week the European Central Bank dropped all language on its explicit pledge to extend its quantitative easing bond-buying programme, if needed, to struggling countries in the eurozone, and now Mario Draghi has given more details on the conditions needed to end Quantitive Easing (QE) altogether.
Mr Draghi told the conference that the eurozone economy has “developed even more strongly than we expected and confidence in the euro area has increased”.
However, adding the all-important caveat regarding bond-buying stimulus, “but it is not because real growth is strong that we can declare the job done”.
He said: “There is a very clear condition for us to bring net asset purchases to an end: we need to see a sustained adjustment in the path of inflation towards our aim, which is a headline inflation rate of below, but close to 2 percent over the medium term.”
However, marking a typically cautious tone Mr Draghi said: “We still need to see further evidence that inflation dynamics are moving in the right direction.”So monetary policy will remain patient, persistent and prudent.”
Kristine Aquino from Bloomberg news commented that the ECB has been forced to act with the strength of the Euro starting to take its toll on businesses – claiming that there are increasing signs that orders and exports are not as strong.
Laurent Clavel, Head of Macroeconomic Research at AXA Investment Managers (AXA IM) told Express.co.uk that the current spike in confidence is actually underestimating the strength of the current Eurozone economic expansion.
Somewhat at odds with the general sentiment across the news media Mr Clavel says that Brexit and Italy are of no real concern to the EZ, but President Trump’s trade talks contains a, “clear negative risk”.
He said: “Italy is also enjoying the Eurozone’s favourable economic momentum and positive sentiment. Italy has front-loaded its fiscal effort which should see public debt decrease going forward.
“Brexit is much more a UK problem than a Eurozone one. While we see Brexit having a net negative impact for the EMU, we estimate that the impact will be about 10 percent the one suffered by the UK.
“Nobel laureate Paul Krugman’s conservative estimate of a 2 percent GDP loss for the UK, then the Eurozone would lose 0.2 percent of GDP; hardly worth derailing the on-going cyclical momentum.”
On President Trump’s protectionist threats and recent tariffs on steel and aluminium US imports, Mr Clavel says that thre is, “indeed a clear negative risk, well flagged in President Draghi’s March press conference”.
more to follow…